FDR: A Model for Obama?

Like his Depression-era counterpart, Obama must take bold action, seize opportunity and experiment.

By

January 8, 2009

As President-elect Obama and British Prime Minister Brown study Franklin Roosevelt’s famous Hundred Days and look to him for inspiration, it is salutary to remember how unprepared FDR was for the financial crisis that faced him, and how improvisational his response was. The Hundred Days were to a large extent an accident. Roosevelt had to deal with the immediate crisis that had closed most of the nation’s banks, but he took advantage of it by asking Congress to stay in session to pass unprecedented recovery and reform legislation.

Inauguration day, March 4, 1933, was a Saturday. New York and Illinois shut their banks that morning, the climax of months of relentless pressure that brought the entire banking system to a halt. Roosevelt’s advisers, who had no plans of their own, turned to holdover Treasury and Federal Reserve officials for help. Those advisers resurrected proposals that had been drafted and set aside during the outgoing Hoover administration. Roosevelt proclaimed a national bank holiday on March 5 and summoned Congress into special session for the following Thursday. On Tuesday, March 7, Federal Reserve official Walter Wyatt was summoned to the White House to draft a banking bill. He asked what the administration wanted. The White House reply was spare, to say the least. “Ratify the Bank Holiday, preferred stock in the national banks…. The Bank Conservation Act, and a few things like that,” Wyatt said in an oral history decades later. “I had a little slip of paper in my hand about that big, and I wrote one line on each subject. That’s all I had to go by.” In the days to come, neither bankers nor Roosevelt’s administration team nor Congressional leaders had much to add to what Wyatt and his team proposed.

Wyatt was amazed at how unprepared Roosevelt’s people were. “There wasn’t anybody in that entire Brains Trust, apparently, that had given any thought–they certainly had no plans–or any real study to the problem created by this banking situation,” he said. Wyatt worked feverishly in the next twenty-four hours to draft a bill. When he finished, he told the White House, “In the few hours we’ve got, you can’t improve this thing. And you might ruin it.” The House passed Wyatt’s bill, the Emergency Banking Act, on March 9, after only forty-three minutes of debate, even though House leaders had been given just one copy of it. The Senate was slightly more leisurely, passing the bill later the same day.

Over the next three days Treasury officials and bankers tried to work out which banks would be safe to reopen. They erred on the side of optimism, but ultimately success would depend on a “man-to-man appeal for public confidence” by the president, as a memo from his advisers put it. When he addressed the nation in the first of his fireside chats, on March 12, it was a tremendous gamble. Roosevelt told Americans that it was safer to put their money back in the banks, which were scheduled to reopen the next day, than to leave it under the mattress. They believed him, and sure enough, money flowed back into the system. There was no Plan B–if people had continued to keep their money out, absolute disaster would have followed. The difference between success and failure was extraordinarily narrow.

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Roosevelt had no carefully worked out recovery program ready to deliver to Congress. Yet in the following twelve weeks he succeeded in securing fifteen pieces of major legislation. The government was given new powers to regulate the stock exchange, determine the gold value of the dollar, prescribe minimum wages and prices, pay farmers not to produce, give money to the unemployed, regenerate a huge river basin spreading across six states, spend billions of dollars on public works and underwrite credit for bankers, homeowners and farmers. That towering legislative record has been the benchmark against which every successive president has had to measure his first hundred days in office.

The situations in 1933 and 2009 have similarities. In both cases, there is a discredited outgoing administration, a financial crisis, a lame-duck Congress that finds it difficult to act, a new president who is a talented communicator and has a substantial election victory margin and large Congressional majorities. But 1933 was also very different. The Depression had already been going on for more than three years. Between a quarter and a third of the industrial workforce was unemployed. Farmers, who were a third of the workforce then, were desperate. In 1933 there were none of the stabilizers that exist now to protect ordinary Americans: no bank deposit insurance, no unemployment insurance and no federal welfare. And the welfare and relief resources of private charities and local and state governments had been exhausted by the time Roosevelt assumed office.

The sense of desperation was palpable. Armed soldiers guarded government buildings in Washington. Commentators talked casually of the need for dictatorship. The passage in FDR’s inaugural address that attracted the greatest applause was his promise that if Congress did not grant him the power he needed, he would take upon himself the emergency powers he would assume if he were leading the country in a war to repel a foreign foe. The wartime analogy was frequently made in 1933, and the justification of dealing with an emergency was often inserted into legislation to protect it from constitutional challenge. Agencies like the National Recovery Administration were consciously modeled on their World War I predecessors. Many who had served in those earlier agencies returned to Washington in 1933 to staff their New Deal successors.

The atmosphere in 1933 had less in common with today’s economic crisis than with post-9/11 Washington, when Congress was prepared to grant previously unimaginable powers to the president with the Patriot Act and a raft of other measures wrapped up in the national security blanket. In 1933 Congressmen were left in no doubt by their constituents that they were expected to support the president. Influential Southern Democrats, who controlled many key committees, were prepared to support measures that appeared to run counter to their conservative principles because of the emergency and because cotton and tobacco farmers were desperate for assistance. Western Republicans supported the administration’s drive to rescue farmers and shared its distrust of Eastern financiers. Even conservative Republican leaders from the East dared not oppose a president whose boldness was supported by ordinary Americans, who wrote to the White House by the thousands, and by newspapers across the political spectrum. Will today’s Congress feel the same pressure to support President Obama? Will freshman Democrats from conservative districts or Republicans from safe seats be willing to grant vast new spending powers to the government?

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Desperate times impose constraints on a president as much as they offer opportunities. In 1933 Roosevelt had to act quickly to reopen banks, put people to work, provide relief and help farmers–without the apparatus of an effective, powerful government. At that time, most Americans’ only contact with the federal government was through the Post Office or through the small peacetime military. Fewer than 5 percent paid federal income tax. The government had neither the necessary information to dictate policy nor the personnel to implement top-down programs. Who knew which banks were safe to reopen? The bankers themselves. Who knew industries well enough to draft recovery codes? The business trade associations. Who could induce millions of farmers to sign contracts to destroy their crops or reduce acreage in order to raise prices? Their farmer neighbors. Who could administer a new federal relief program? There were no federal agencies, so FDR had to use existing state relief administrations. What arm of government could take a quarter of a million young men from the cities and set them to work in the countryside in newly built Civilian Conservation Corps camps by the end of June? Only the Army could do that.

It is not surprising that Roosevelt therefore had a penchant for quick-fix solutions that might bring recovery without a permanent expansion of the bureaucracy or constant state intervention. Slashing government spending with the Economy Act (which cut government employees’ salaries and veterans’ pensions), propaganda drives to urge businessmen to keep wages up and various schemes of currency inflation all attracted Roosevelt. He never lost hope that tinkering with the currency–including a gold-buying scheme derided by the experts–would raise prices, particularly of farm products, and in itself bring recovery. He talked of “bold, persistent experimentation,” but in fact he rarely admitted that any experiment had failed.

In the absence of a carefully prepared blueprint to impose on the country, Roosevelt seized opportunities. Once Congress was in session, he was persuaded to keep it sitting to pass farm legislation. Forty days into the Hundred Days there was no indication that there would be an industrial recovery program. Only when Congress threatened to pass share-the-work legislation, which would have mandated a maximum thirty-hour week for all workers, did Roosevelt propose the National Industrial Recovery Act. He asked his aide Harry Hopkins, formerly a professional social worker, to set up a national relief program only when existing appropriations to the states had run out. Roosevelt was skeptical of large-scale public works spending, and he opposed the federal guarantee of bank deposits. He accepted both only when it was clear that Congress would pass them.

Microeconomic intervention in the Hundred Days did not necessarily work. The National Recovery Administration codes of fair practice probably checked the deflationary spiral that had driven down wages and prices, but there was no mechanism for creating extra jobs in the private sector. Public works projects could not be launched quickly enough, and before the late 1930s scarcely anyone envisaged the levels of spending that would be needed to bring recovery. Roosevelt’s biggest mistake was probably his failure to provide loans to business to finance new investment and expansion. On the other hand, the farm program was a success. In the long run it may have inhibited the necessary structural rationalization of American agriculture, but at the time it enabled desperate farmers to stay on the land until they could leave for jobs in the military industries during World War II.

International expectations of FDR were enormous. Throughout the Hundred Days, European leaders came to Washington to enlist his support for currency stabilization and the removal of trade barriers in the upcoming London economic conference. Roosevelt led them to believe that he would support an international recovery package that would restore the equivalent of the gold standard and revive world trade. But such a package would have imposed the discipline of a balanced budget and prevented the administration from raising domestic prices to reflate the economy. When FDR scuppered the London conference, European leaders, particularly the British, felt badly let down. Yet none of them had had any real intention of surrendering the economic advantages they had gained from their own protective tariffs and devaluations. International expectations of Obama are arguably even greater. Now, as then, European leaders will be only too happy to blame the United States for failing to make sacrifices (e.g., in energy policy) that they themselves have no intention of making.

Roosevelt did not allow the immediate demands of the economic emergency to dictate the postponement of reform measures. He established the regulatory principles for banking and the stock market that, refined in 1934 and ’35, would produce financial stability for the next two generations–until they were relaxed in the 1980s and ’90s. The right routinely denounces the New Deal regulatory regime for the costs it imposed on business. In 2009 those denunciations look particularly unconvincing. Roosevelt launched the Tennessee Valley Authority, a remarkable combination of flood control, cheap power production and regional redevelopment that could probably have only been passed in 1933, when state governments were so feeble and private power companies so discredited. Roosevelt also recognized that some reforms would have to wait. The groundwork had to be laid for Social Security, which would come in 1935. But both the Hundred Days and the longer-term New Deal showed that social reform could be launched in a depression, in contrast to so much social reform that had taken place during periods of prosperity.

Finally, in 1933 Roosevelt brought to Washington a remarkable group of public servants to staff New Deal agencies: intellectuals, lawyers, economists, farm specialists and social workers, notably women with social policy expertise, who entered senior levels of government in large numbers for the first time. They have been scorned by right-wing historians as impractical theorists, do-gooders who had never met a payroll and who were driven by intense antibusiness prejudice. Actually, they provided a model of disinterested public service that was socially concerned and competent. Let us hope Obama can instill the same zeal for public service in the young people who so energized his campaign and the whole political process.

At the top level, FDR’s first cabinet contained the usual mix of conventional partisan appointments, especially of Southern and Western Democrats. But he made three strikingly unconventional appointments. Frances Perkins, the first female cabinet member and the first labor secretary without union credentials, masterminded the introduction of Social Security. Harold Ickes, a disappointed Chicago reformer, presided over the greatest public investment ever in the nation’s infrastructure as interior secretary. Henry Wallace, a Republican farm journal editor who created a spectacularly successful plant breeding company, became the most expert and liberal agriculture secretary in US history. Obama’s appointments in the fields of economic, scientific and energy policy show some of the same openness to intellectual expertise.

So, are there lessons from 1933 for Obama?

First, in an economic emergency, however distasteful it may be, you have to bail out the bankers and corporations. Second, any economic recovery package has to be bold–to create jobs, you have to spend a lot. Third, infrastructure investment works–as the New Deal’s public works programs showed in highways, education, cheap electrical power and flood control. Fourth, while you do not have to postpone much-needed reforms, you don’t have to get all your reforms passed at once. Finally, you cannot expect a recovery program, no matter how well prepared, to sail through unchallenged. You have to be nimble enough to accept some of the things Congress will insist on that you may not like. But there may be new and unexpected crises that can, as in 1933, offer opportunities to a president willing to take them.

In the 1930s the patrician squire Franklin Roosevelt convinced a textile worker in North Carolina that he “is the only man…in the White House who would understand that my boss is a son-of-a-bitch.” However President Obama negotiates his first hundred days, his words and his policies also have to convince ordinary Americans who are victims of the credit crunch that he and the government are on their side.